Does Audit Committee Reporting Need to Be Improved? Evidence from a Large-Scale Textual Analysis

57 Pages Posted: 16 Feb 2018

See all articles by Michelle Draeger

Michelle Draeger

Colorado State University

Bradley Lawson

Oklahoma State University - Stillwater - School of Accounting

Jaime J. Schmidt

University of Texas at Austin

Date Written: January 28, 2018

Abstract

The SEC is considering expanding audit committee reporting requirements to include greater disclosure of the audit committee’s oversight of the external auditor. To provide insight into whether additional reporting requirements are needed we (1) perform a large-scale textual examination of the characteristics and time trends of over 35,000 US firms’ audit committee report disclosures issued between 2004 and 2015 and (2) explore whether investors find such reports useful. We find that audit committee reports have become shorter over time and include fewer voluntary disclosures. While we find some audit committees voluntarily report how auditor oversight has been performed, we find that most of these disclosures are largely boilerplate. In multivariate analyses, we provide evidence that larger companies with greater global reach, greater litigation risk, and employing Big N auditors provide greater disclosure. We find little evidence to indicate that audit committee characteristics (i.e., audit committee size, expertise, etc.) are associated with the amount of audit committee report disclosure. Finally, we do not find evidence that investors’ audit committee ratification votes are affected by the amount of disclosure in the audit committee report. In sum, our findings suggest that there is a need to improve the usefulness of audit committee report disclosures.

Keywords: audit committee reports, voluntary disclosure, textual analysis, LIWC

JEL Classification: M41, M48

Suggested Citation

Draeger, Michelle and Lawson, Bradley and Schmidt, Jaime J., Does Audit Committee Reporting Need to Be Improved? Evidence from a Large-Scale Textual Analysis (January 28, 2018). Available at SSRN: https://ssrn.com/abstract=3118408 or http://dx.doi.org/10.2139/ssrn.3118408

Michelle Draeger

Colorado State University ( email )

256 Rockwell Hall
Fort Collins, CO 80523
United States

Bradley Lawson

Oklahoma State University - Stillwater - School of Accounting ( email )

College of Business Administration
415 Business Building
Stillwater, OK 74078
United States

Jaime J. Schmidt (Contact Author)

University of Texas at Austin ( email )

Austin, TX 78712
United States

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